A few petitions and e-mail campaigns have been circulating that demand financial institutions waive their processing fees for the handling of donations to help relief efforts in Haiti, following the earthquake there last week. Some of the requests that I've gotten have expressed irritation that fees are charged at all on charitable giving transactions of any sort.
While I commend the efforts of those who are seeking to maximize the funds that have a direct impact on the actual aid work, I'm not sure that this particular request makes sense to me.
First, a little background on how processing fees work:
How money gets from here to there
Most donations that any of us give to any organization flow through some sort of multi-step process before the funds are actually available to that organization. The simplest form, of course, is that I walk down the street to the organization's headquarters and hand them cash that comes out of my wallet. The cash is in their hands, ready to use however they might need it.
A more common flow is that I write a check and mail it into the organization. The costs and hassles here are still minimal - I might pay 42 cents for the stamp, I probably had some envelopes laying around, the additional staff time needed at the organization to convert the check to usable funds is probably wrapped up in a deposit they'd do anyway, and their bank probably doesn't charge them for that process. But still, it's a little more overhead and infrastructure than the cash transaction needed.
Which brings us to credit card transactions and other forms of electronic giving. When you pay for something with a credit card, there are a slew of institutions involved in making that transaction successful. There's your relationship with your credit card company that allows you to have the line of credit in the first place. There's the receiving organization's relationship with a credit card processor, which allows them to take you credit card number and hold some dollars on your account. There's the credit card processor's relationship with other credit card companies, which allows them to talk to your credit card company to make sure you have those funds available. And then there's the credit card processor's relationship with the receiving organization's bank, which allows them to deposit your money into the bank account. Similar relationships are in place when you use online payment services like PayPal.
Of course, all of this happens with the swipe of a piece of plastic and some behind-the-scenes bit shuffling, but that doesn't mean that it's not an incredibly complicated series of relationships and many pieces of physical and technological infrastructure. It's understandable that there are some costs involved.
Do they really need to charge that much?
Now to be sure, I think that the credit card companies and PayPal are making quite a nice profit margin on their operations. Between the fees they charge the receiving organization for using their services (usually a monthly charge plus per-transaction fees) to the interest and account fees they make off of each credit card holder, it's arguable that they've got quite a nice little racket going.
But this reality doesn't have anything to do with whether or not the transaction is being made for a charitable cause - I use my credit card regularly for things that I think are good and necessary in my life, the life of my community, and the larger world, and they may or may not be going to an IRS-recognized 501(c)3 charity. If the credit card companies choose to use some of their earnings to give back to the relief effort, that's their choice, but I'm not sure we can demand it within the capitalist context of the financial ecosystem and our on-demand society that allows them to exist and thrive in the first place.
Another angle to this is that there are some very clever, entrepreneurial people out there who have pioneered the technologies and relationships that let you do things like send a text message to a certain number in order to donate funds to a good cause - one that's gotten some attention with the Haiti giving is mGive. If someone has created a tool that didn't exist before allowing faster, easier donation of funds in a way that raises more money, I think they should be allowed to make a business model around that creation. Choosing to donate some or all of their proceeds back to the relief effort would be an admirable thing for them to do, but I'm not sure we have a right to be indignant if they don't.
Refocusing on the bigger issues
When we give money to a relief effort, we expect that that money isn't going to end up in the pockets of the people in need of help. It will be used to buy things and services that help them, and it will be used to fund the infrastructure needed to get those things and services delivered. Donation processing fees may not be as tangibly or obviously necessary as the cost of a supply airlift flight or medical supplies, but they're still a part of that infrastructure and ecosystem.
Again, I'm not saying that credit card / electronic transaction processing fees or the whole credit system is fair or just - I suspect that is not true at all. But calls to change it should be focused on the broader industry practices and the culture that enables those, not the temporary diversion of fees charged during charitable giving. And those calls are out there - major retailers (e.g. 7-Eleven) have launched campaigns to fight back against the fees they're paying to accept credit cards, and there are plenty of private and governmental efforts to cap interest rates on cards.
If you're interested in these issues and like watching glowing rectangles, I highly recommend the Frontline special "The Secret History of the Credit Card" and the film Maxed Out. I also suggest you talk with the people who run the businesses and organizations you support, and ask them how credit card processing fees affect them - you may find yourself writing more checks or even handling cash more often.
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The credit card companies should just suck it up, not be greedy for all of 2 weeks, and take a small loss on those transactions.
I guarantee they'll remain profitable during that period, and PROBABLY garner a HUGE amount of positive PR.
The other day I heard that people are raising money for food and water to bring to Haiti. I understand that Haiti doesn't currently have potable water, but who the hell is CHARGING for it? Eat the cost! Even if they're giving the water away and only charging for the transportation -- that's still like driving across town to get people out of a burning building, and then charging them for the gas you used to get there!
This rampant greed is pretty much the core of our banking crisis a year ago -- there is more to life than the bottom line.
Credit card companies charge money in a way that is meant to be transparent to consumers, and hide the nature of their fees. For many businesses that's fine, the credit card fees are simply an aspect of doing business, and may be more than worth it if credit cards encourage people to use their business. For many businesses taking credit cards means people will pay more than if they were paying with cash, even if the person had cash on hand to pay.
This is all a bit cynical, but I guess that's just the nature of business. But it isn't the nature of charity. If credit card companies charged the payer for the service then that would be reasonable and transparent. And people wouldn't donate with credit cards, because they'd be offended at the cost (even when it's small, the presence of the cost is offensive when actually presented in a transparent manner, regardless of whether it is a charity).
The kind of cynical bargain credit card companies make with businesses is certainly one they can (and do) make with charities. And it may be just one more middle-man among many; at least less offensive than sending out free return address labels or other ways that charities "invest" in receiving funds.
But the exchange isn't quite the same with a charity as a business. With a business the transaction is simple -- you pay them if they provide you a service of sufficient value. They price the value to cover costs and make some profit. You don't pay a business to make sure they get the money. But when you pay a charity you pay them to do work, you don't receive anything directly in exchange, and you expect the money to be used well, you don't expect some kind of Goodness Profit.
So I think it is reasonable to expect more of payment services in this situation.
Nytimes had a fascinating article on the crazy manipulation of credit card fees, especially in relation to debit card fees. http://www.nytimes.com/2010/01/05/your-money/credit-and-debit-cards/05visa.html
Off topic: Love the Feed My Inbox feature that notifies me of your latest posts.